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Note 2 - Acquisition of Peoples Bancorp, Inc. of Bullitt County
 12 Months Ended
Dec. 31, 2015
Business Combinations [Abstract]  
Business Combination Disclosure [Text Block]
(2) ACQUISITION OF PEOPLES BANCORP, INC. OF BULLITT COUNTY

On December 4, 2015, the Company acquired 100% of the outstanding common shares of Peoples Bancorp, Inc. of Bullitt County (“Peoples”), the bank holding company for The Peoples Bank of Bullitt County (“Peoples Bank”), headquartered in Shepherdsville, Kentucky, pursuant to an Agreement and Plan of Merger dated June 4, 2015 (the “Merger Agreement”). Under the Merger Agreement, Peoples merged with and into the Company, with the Company as the surviving corporation, and Peoples Bank merged with and into the Bank, with the Bank as the surviving corporation. The acquisition expanded the Company’s presence into Bullitt County, Kentucky and expanded its overall presence in the greater Louisville, Kentucky metropolitan market. The Company expects to benefit from growth in this new market area as well as from expansion of the banking services provided to the existing customers of Peoples Bank. Cost savings are also expected for the combined bank through economies of scale and the consolidation of business operations.


Pursuant to the terms of the Merger Agreement, shareholders of Peoples had the right to elect to receive either 382.83 shares of Company common stock or $9,475 in cash for each share of Peoples common stock owned, subject to certain adjustments and proration provisions specified in the Merger Agreement that provided for a targeted aggregate mix of total consideration of 50% common stock and 50% cash. Due to such adjustments, at the effective time of the merger, Peoples shareholders had the right to elect to receive either 377.637 shares of Company common stock or $9,607.08 in cash for each share of Peoples common stock owned. The Company paid cash consideration of $14.7 million in the transaction and issued 580,017 shares of Company common stock, with a total fair value of $14.8 million based on the $25.44 per share average closing price of the Company’s common stock for the 20 days ended November 27, 2015, to the former Peoples shareholders. Acquisition-related costs totaling $1.0 million were expensed as incurred and reported in noninterest expense in the accompanying consolidated statement of income for the year ended December 31, 2015.


As part of the merger, the Company acquired foreclosed real estate with an estimated fair value of $3.75 million (the “Contingent Assets”). Under the terms of the Merger Agreement, if the Company sells the Contingent Assets within 24 months after the effective date of the merger or has entered into a written contract for the sale of the Contingent Assets which are then sold within 60 days after the expiration of that 24-month period, the Company will distribute additional cash consideration of 50% of the sale proceeds in excess of $3.75 million on a pro rata basis to the former shareholders of Peoples. At December 31, 2015, there was no written contract for the sale of the Contingent Assets and no contingent consideration is anticipated.


The transaction was accounted for using the acquisition method of accounting. Accordingly, the results of operations of Peoples have been included in the Company’s results of operations since the date of acquisition.


Under the acquisition method of accounting, the purchase price is assigned to the assets acquired and liabilities assumed based on their estimated fair values, net of applicable income tax effects. The excess of cost over the fair value of the acquired net assets of $1.1 million has been recorded as goodwill. The goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of the Company and Peoples. No amount of the goodwill arising in the acquisition is deductible for income tax purposes.


Following is a summary of the assets acquired and the liabilities assumed recognized at the date of acquisition:


    (In thousands)
     
Cash and cash equivalents   $ 33,458  
Interest-bearing time deposits     4,980  
Investment securities     131,959  
Loans     55,727  
FHLB and other stock     1,295  
Foreclosed real estate     4,349  
Premises and equipment     3,465  
Cash value of life insurance     828  
Goodwill     1,085  
Core deposit intangible     1,418  
Other assets     1,886  
Total assets acquired     240,450  
         
Deposit accounts     209,084  
Net deferred tax liability     17  
Other liabilities     1,846  
Total liabilities assumed     210,947  
         
Total consideration   $ 29,503  

In accounting for the acquisition, $1.4 million was assigned to a core deposit intangible which is amortized over a weighted-average estimated economic life of 9.67 years. It is not anticipated that the core deposit intangible will have a significant residual value.


ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, applies to loans with evidence of deterioration of credit quality since origination, acquired by completion of a transfer for which it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable (referred to as purchased credit impaired loans or PCI loans). See Note 5 for additional disclosures related to the Company’s PCI loans. Following is a summary of the acquired loans at the date of acquisition:




 

(In thousands)

   Fair Value   Gross Contractual Amounts Receivable   Estimated Contractual Cash Flows Not Expected to be Collected
             
Acquired loans subject to ASC 310-30   $ 1,570     $ 2,934     $ 1,033  
Acquired loans not subject to ASC 310-30     54,157       60,013       1,927  
                         
Total acquired loans   $ 55,727     $ 62,947     $ 2,960  

For the period from December 4, 2015 to December 31, 2015, Peoples contributed $291,000 in loan interest income and $94,000 in deposit interest expense to the Company’s operations. Total contributed revenues and net income of Peoples for the period from December 4, 2015 to December 31, 2015 is not available as separate information on all revenues and expenses is not maintained.


The following unaudited pro forma combined results of operations assumes that the acquisition was consummated on January 1, 2014:


    Year Ended December 31,
    2015   2014
(In thousands, except per share data)        
         
Interest income   $ 25,639     $ 26,843  
Interest expense     2,160       2,460  
Net interest income     23,479       24,383  
Provision for loan losses     50       190  
Net interest income after provision for loan losses     23,429       24,193  
Noninterest income     7,016       7,921  
Noninterest expenses     22,102       21,562  
Income before income taxes     8,343       10,552  
Income tax expense     2,059       3,094  
                 
Net income   $ 6,284     $ 7,458  
                 
Net income attributable to the Company   $ 6,271     $ 7,445  
                 
Net income per common share, basic   $ 1.89     $ 2.23  
                 
Net income per common share, diluted   $ 1.89     $ 2.23  

In addition to combining the historical results of operations, the pro forma calculations consider the purchase accounting adjustments and nonrecurring charges directly related to the acquisition and the related tax effects. The pro forma calculations do not include any anticipated cost savings as a result of the acquisition. The pro forma results of operations are not necessarily indicative of the actual results of operations that would have occurred had the acquisition actually been consummated on January 1, 2014, or results that may occur in the future.